FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Quarter Ended June 30, 1997 Commission File No. 04804 TENNANT COMPANY Incorporated in Minnesota IRS Emp Id No. 410572550 701 North Lilac Drive P.O. Box 1452 Minneapolis, Minnesota 55440 Telephone No. 612-540-1200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding of Registrant's common stock, par value $.375, on June 30, 1997, was 9,926,356.
Page 2 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS (UNAUDITED) - ---------------------------------------------------------------------- (Dollars in thousands) <TABLE> <CAPTION> Three Months Six Months Ended June 30 Ended June 30 --------------------- --------------------- EARNINGS (note 1) 1997 1996 1997 1996 ------ ------ ------ ------ <S> <C> <C> <C> <C> Net sales $93,359 $86,794 $176,385 $163,617 Less: Cost of sales (note 2) 53,589 51,004 102,466 95,060 Selling and administrative (note 2) 30,306 28,020 57,868 55,140 -------- -------- -------- -------- Profit from operations 9,464 7,770 16,051 13,417 Other income and (expense) Net foreign currency gain (loss) 8 (148) (28) 40 Interest income 1,113 1,068 2,234 2,102 Interest expense (459) (640) (986) (1,352) Miscellaneous income (expense), net (181) (200) (482) (314) -------- -------- -------- -------- Total other income (expense) 481 80 738 476 -------- -------- -------- -------- Earnings before income taxes 9,945 7,850 16,789 13,893 Taxes on income 3,528 2,685 5,965 4,744 -------- -------- -------- -------- Net earnings $ 6,417 $ 5,165 $ 10,824 $ 9,149 -------- -------- -------- -------- -------- -------- -------- -------- PER SHARE (note 5) Net earnings $ .64 $ .51 $ 1.08 $ .91 Dividends $ .18 $ .17 $ .36 $ .34 Average number of shares 9,968,700 10,036,300 9,991,600 10,022,300 </TABLE>
Page 3 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q ITEM 1 - FINANCIAL STATEMENTS (continued) TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS - ---------------------------------------------------------- (Dollars in thousands) BALANCE SHEET <TABLE> <CAPTION> (Condensed from Audited (Unaudited) Financial Statements) ASSETS June 30, 1997 December 31, 1996 ------------- ----------------- <S> <C> <C> Cash and cash equivalents $ 10,674 $ 9,881 Receivables 76,833 78,855 Less deferred income from sales finance charges (1,701) (1,831) Less allowance for doubtful accounts (2,486) (2,506) -------- -------- Net receivables 72,646 74,518 Inventories (note 3) 39,342 35,264 Prepaid expenses 663 934 Deferred income taxes, current portion 5,759 5,884 -------- -------- Total current assets 129,084 126,481 Property, plant, and equipment 153,421 148,922 Less allowance for depreciation (88,658) (83,538) -------- -------- Net property, plant, and equipment 64,763 65,384 Net noncurrent installment accounts receivable 6,938 7,448 Deferred income taxes, long-term portion 1,468 1,524 Intangible assets 17,023 17,752 Other assets 470 591 -------- -------- Total assets $219,746 $219,180 -------- -------- -------- -------- LIABILITIES & SHAREHOLDERS' EQUITY (Condensed from Audited (Unaudited) Financial Statements) LIABILITIES June 30, 1997 December 31, 1996 ------------- ----------------- Current debt $ 337 $ 3,864 Accounts payable 16,481 17,485 Accrued expenses 27,776 28,239 -------- -------- Total current liabilities 44,594 49,588 Long-term debt 22,941 21,824 Employee retirement-related benefits 19,422 18,528 Other long-term liabilities 190 380 -------- -------- Total liabilities 87,147 90,320 SHAREHOLDERS' EQUITY Common stock (note 5) 3,722 3,737 Additional paid-in capital (note 5) 1,917 3,547 Equity adjustment from foreign currency translation 1,130 2,877 Common stock subscribed 118 703 Unearned restricted shares (650) (440) Retained earnings 137,936 130,703 Receivable from ESOP (11,574) (12,267) -------- -------- Total shareholders' equity 132,599 128,860 -------- -------- Total liabilities and shareholders' equity $219,746 $219,180 -------- -------- -------- -------- </TABLE>
Page 4 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q ITEM 1 - FINANCIAL STATEMENTS (continued) TENNANT COMPANY AND SUBSIDIARIES - CONSOLIDATED STATEMENTS (UNAUDITED) - ---------------------------------------------------------------------- (Dollars in thousands) <TABLE> <CAPTION> STATEMENTS OF CASH FLOWS (note 4) Six Months Ended June 30 ------------------------ 1997 1996 ------ ------ <S> <C> <C> Net cash flow related to operating activities $ 16,819 $ 16,015 Cash flow related to investing activities: Acquisition of property, plant, and equipment (9,985) (11,093) Acquisition of intangible assets -- (179) Proceeds from disposals of property, plant, and equipment 1,401 1,920 Settlement of foreign currency hedging contracts 470 313 --------- --------- Net cash flow related to investing activities (8,114) (9,039) Cash flow related to financing activities: Net changes in current debt (2,126) (6,712) Issuance of long-term debt 8 -- Payments to settle long-term debt (12) -- Principal payment from ESOP 545 495 Proceeds from employee stock issues 920 895 Repurchase of common stock (3,874) -- Dividends paid (3,590) (3,406) --------- --------- Net cash flow related to financing activities (8,129) (8,728) Effect of exchange rate changes on cash 217 191 --------- --------- Net increase (decrease) in cash and cash equivalents 793 (1,561) Cash and cash equivalents at beginning of year 9,881 4,247 --------- --------- Cash and cash equivalents at end of second quarter $10,674 $2,686 --------- --------- --------- --------- </TABLE>
Page 5 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q ITEM 1 - FINANCIAL STATEMENTS (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In the opinion of management, financial satements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the interim periods presented. The results of operations for interim periods are not necessarily indicative of results which will be realized for the full fiscal year. (1) The Company's Summary of Significant Accounting Policies and other Related Data and Summary of Stock Plans, Bonuses, and Profit Sharing is included in the Company's 1996 Annual Report filed as Exhibit 13.1 to the Company's annual filing on Form 10-K and is incorporated in this Form 10-Q by reference. (2) Expenses Engineering, research and development, maintenance and repairs, warranty, and bad debt expenses were charged to operations for the three and six months ended June 30, 1997 and 1996, as follows: Three Months Six Months Ended June 30 Ended June 30 ------------- ------------- 1997 1996* 1997 1996* ---- ----- ---- ----- (In Thousands) Engineering, research and development $3,459 $3,190 $6,696 $6,492 Maintenance and Repairs $1,396 $1,435 $2,886 $2,787 Warranty $1,096 $1,024 $2,130 $2,247 Bad debts $ 203 $ 322 $ 338 $ 521 The Company also makes accrual adjustments on a regular monthly basis for bonus and profit sharing expenses which are settled at year-end. This allows for a fair statement of the results for the interim periods presented. *Restated to conform with current year presentation. (3) Inventories Inventories are valued at the lower of cost (principally on a last-in, first-out basis) or market. The composition of inventories at June 30, 1997, and December 31, 1996, is as follows: June 30 December 31 1997 1996 ------- ----------- (In Thousands) FIFO Inventories: Finished Goods $26,931 $26,317 All Other 30,925 26,879 LIFO Adjustment (18,514) (17,932) ------- ------- LIFO Inventories $39,342 $35,264 ------- ------- ------- -------
Page 6 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q ITEM 1 - FINANCIAL STATEMENTS (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) Cash Flow Income taxes paid during the six months ended June 30, 1997 and 1996, were $7,187,000 and $3,137,000, respectively. Interest costs paid during the six months ended June 30, 1997 and 1996, were $984,000 and $1,337,000, respectively. (5) Stock Split On February 16, 1995, the Board of Directors declared a two-for-one stock split effective April 26, 1995, for shareholders of record on April 12, 1995. For each share to be issued in connection with the stock split, an amount equal to the par value of $.375 was transferred to the common stock amount from additional paid-in capital retroactive to December 31, 1994. All share and per share data in this report have been retroactively adjusted to reflect this stock split. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Management's discussion and analysis of financial condition and results of operations is included in Exhibit 13.1, attached, text portion of Report to Shareholders for the Six Months Ended June 30, 1997, and is incorporated in this Form 10-Q by reference.
Page 7 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q PART II - OTHER INFORMATION ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Shareholders' Meeting held on May 1, 1997, the following matters were submitted to vote: (a) Election of Directors David C. Cox was elected to serve a three-year term as a director of the Company. Out of 7,258,230 common shares represented, 7,001,216 voted in favor and 257,014 withheld. William I. Miller was elected to serve a three-year term as a director of the Company. Out of 7,258,230 common shares represented, 6,990,138 voted in favor and 268,092 withheld. Edwin L. Russell was elected to serve a three-year term as a director of the Company. Out of 7,258,230 common shares represented, 6,994,497 voted in favor and 263,733 withheld. The following directors each continued their term of office after the meeting: Arthur D. Collins, Jr. Andrew P. Czajkowski Roger L. Hale William A. Hodder Delbert W. Johnson (b) Non-Employee Director Stock Option Plan The Non-Employee Director Stock Option Plan was approved and ratified. Out of 7,258,230 common shares represented, 6,649,441 voted in favor, 419,184 against, and 189,605 abstained. (c) Appointment of KPMG Peat Marwick as Auditors The appointment of KPMG Peat Marwick as independent auditors of the Company was approved. Out of 7,258,230 common shares represented, 7,177,407 voted in favor, 41,310 against, and 39,513 abstained.
Page 8 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits <TABLE> <CAPTION> Item # Description Method of Filing ------ ----------- ---------------- <S> <C> <C> 3i Articles of Incorporation Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement No. 33-62003, Form S-8, dated August 22, 1995. 3ii By-Laws Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement No. 33-59054, Form S-8, dated March 2, 1993. 10.1 Non Employee Director Incorporated by reference to Stock Option Plan Exhibit 99 to the Company's Registration Statement No. 333-28641, Form S-8, dated June 6, 1997 13.1 Text Portion of Report to Shareholders for Filed herewith electronically. the Six Months Ended June 30, 1997 27.1 Financial Data Schedule Filed herewith electronically. </TABLE> (b) Reports on Form 8-K A Form S-8 was filed June 6, 1997, reporting the Non-Employee Director Stock Option Plan.
Page 9 of 9 TENNANT COMPANY Quarterly Report - Form 10-Q SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TENNANT COMPANY Date: August 8, 1997 /s/ Richard A. Snyder ----------------------------- ------------------------------- Richard A. Snyder Vice President, Treasurer and Chief Financial Officer Date: August 8, 1997 /s/ Mahedi A. Jiwani ----------------------------- ------------------------------- Mahedi A. Jiwani Corporate Controller and Principal Accounting Officer